September 2011 California Broker

Is Self-Funding the Best Way to Control Your Clients’ Skyrocketing Health Insurance Costs?
by Doug Ramsthel • Self-funded health benefits are suddenly in the spotlight and there are several reasons to give them a second look in today’s healthcare environment.
Our Dental Survey: You Know the Drill
by Leila Morris • Welcome to Part III of our annual dental survey. We’ve asked the top dental providers in California to answer 28 questions to help you, the agent, understand the benefits, features, and services. Read the responses and sell accordingly.
There’s More Than Meets the Eye With the Simplified Life Insurance Sale
by Josh O’Gara, CLU • Although guaranteed and simplified issue plans are not ideal for every client, there is definitely a market for them since they address a number of issues that exist with traditional insurance for both the client and agent.
Voluntary Benefits–How Changing Benefit Trends Affect Your Clients
by Allison Farris Wendelberger • Four trends to discuss with HR executives as they face major decisions while developing their benefit packages.
Voluntary Benefits–Meeting Benefit Objectives Through Voluntary Group Legal Plans
by Bill Brooks • At a time when employers are facing competing benefit objectives of increasing productivity and employee loyalty while controlling costs, voluntary benefits like group legal plans can help achieve all three.
 Voluntary Benefits–The Door is Open…Are You Ready to Come In? There’s No Time Like the Present for Voluntary Benefits
by Kris Reddaway • With healthcare reform, medical brokers fear that the door is closing on their traditional source of income. Reduced commissions have forced many to look for other sources of revenue. It’s not too late for brokers to open up a whole new line of business that increases their revenue and helps their clients remain competitive.
Long Term Care – Americans Have No Class
by Louis H. Brownstone  • It’s likely the CLASS Act will be repealed soon, and possible that 10 years from now, one could even author a book titled “The Decline and Fall of the Government’s Role in Long-Term Care.”  Middle class Americans will have to protect themselves.
Annuities–A Different Type Of Annuity: A New Way to Pay For Long-Term Care
by Yuri Veomett • Hybrid annuities are changing the way retirees look at paying for LTC.  They offer long-term care benefits while providing growth advantages that traditional annuities offer.
401(k) – Succeeding Under the Spotlight –An Advisor’s Guide to Defined Contribution Fee Disclosures
by Robert MeliaWhen it comes to defined contribution plans, the competitive landscape began a major shift when the Dept. of Labor (DOL) issued final participant fee disclosure regulations in October 2010.
Wellness – Wild About Wellness – Part II of Our Annual Survey
by Leila Morris • Welcome to our first annual Wellness Survey. A serious discussion on a topic that’s become increasingly relevant to today’s market.
COBRA News–Cobra Update
COBRA subsidies expire and COBRA enrollment expected to decline.

Self-Funding–Is Self-Funding the Best Way to Control Your Clients’ Skyrocketing Health Insurance Costs?

by Doug Ramsthel
Self-funded health benefits are suddenly in the spotlight and there are several reasons to give them a second look in today’s healthcare environment. Over 72% of firms with more than 500 employees chose self-funded plans in 2010, as did 55% of firms with 200 to 500 employees. Self-insurance can be an ideal way to manage benefits and healthcare reform compliance affordably and effectively, but it’s not right for every client. The best way to determine if self-funding is right for your client is to examine the fundamentals and explore how to leverage the advantages appropriately.

Looking for the Silver Bullet

The pressure is on employers as benefit costs are on the rise while the economy continues to languish. Many employers are grasping at straws to reduce their healthcare costs. The go-to moves of switching vendors, swapping plan designs, and retooling employer contributions no longer fit the bill. And now wellness programs are back in vogue for their promise to lower costs with a healthier employee base and reduced claims. Employers are likely to reach for the shiniest tools that spark their imaginations with promises of cost savings — whether or not those tools are ideal for their circumstances. Benefits professionals need to guide employers to options that suit their needs best and help them accomplish short-term and long-term goals.

Self-funding is far from the silver bullet to solve all health-benefit cost challenges. In fact, self-funding a plan with sick employees and high claims can escalate costs and invite disaster for some employers. But what self-funding provides is greater transparency, which helps identify a plan’s cost drivers. That valuable information allows for intervention and targeted cost-management rather than a blind shotgun approach. The employer has more control and flexibility in customizing benefits and administration. Smart advisors will point out that self-funding can be an effective platform from which to launch changes that reduce long-term benefit costs. Wellness initiatives, for example, can focus on the top issues that drive costs in any given plan.

Insuring for the Unknowns

If you think that a client may benefit from self-funding and they’re prepared to take action to control the healthcare costs, start by looking at some basic tenets of self-funding. To begin with, the costs of a self-funded insurance plan fall into two main categories: fixed costs and claims liabilities. Fixed costs, which remain the same from month to month, include claims administration, network fees, utilization review, disease management, and stop-loss insurance. Claims liabilities, which vary month to month, are the liabilities for estimated claims and actual claims costs.

It is important to understand the trade-off between fixed costs and variable costs, especially when it comes to stop-loss coverage. Specific stop-loss insurance protects against large claimants while aggregate stop-loss protects against exceeding a predetermined cost for overall claims. An employer that increases the deductible on specific stop-loss insurance will see fixed insurance costs go down while claims liability goes up. Aggregate stop-loss coverage is typically set as a percentage of expected claims (usually 125%). This can be especially attractive to first-year self-funded clients.

Risk management involves navigating the balance between fixed and variable costs. Insurance has always been about protection from unknowns — that is, until the days of low co-pay, rich benefit insurance plans. It’s time to bring some balance back to the equation and help clients budget for the knowns. This can be done by capping claims liability and insuring for the unknowns with the appropriate level of stop-loss insurance. Working with appropriate actuarial resources brings science to the process. You can examine the trade-offs in fixed versus variable expenses on a number of levels. Use a Monte Carlo simulation to create a probability distribution. Then compare it to the premiums for the specific stop-loss at various deductibles

As far as client size is concerned, be careful that fixed costs aren’t higher than 50% or 60% of total plan costs. Otherwise, your client may as well choose a fully insured plan. It may not make sense to launch a self-funded plan for a client that has fewer than 100 employees since the fixed costs are much higher. Larger companies are more likely to appreciate self-funding since larger numbers provide greater predictability of costs.

Bundling or Unbundling

The components of a self-funded plan can be bundled – typically with a major carrier. Or the plan can be managed a la carte with a third-party administrator, stop-loss carrier, case management, disease management, wellness plan coordinator, and network. There are pros and cons to both scenarios. The bundled approach may provide some simpler integration, such as with stop-loss claims. So it may be a good start for a client or advisor who is new to self-funding. But it may not provide the components that are most important to clients’ cost-control efforts. For example, a pharmacy benefit manager (PBM) may be the only offering available under the bundled arrangement. But that PBM may not provide the most favored discounts, rebates, or lowest net costs. With Rx costs accounting for about 15% of a typical health plan’s claims, savings in this area can reduce plan costs substantially. The same applies to specific stop-loss coverage.

Unbundled arrangements can provide a real opportunity to select the lowest cost and best-fit vendor in each facet of the health plan. This is a tremendous advantage, but some of the most aggressively negotiated medical networks will not allow you to unbundle. Also, network discounts are a huge piece of the overall health plan costs. Integrating vendors can be challenging, not only for stop-loss, but also for disease management or PBM and claims administration.

Whether bundled or unbundled, putting too much emphasis on fixed costs is a mistake. Selecting a network based on low network fees, alone, may cost the plan dearly if the network-generated discounts are not significant. Also avoid selecting stop-loss carriers based on costs without carefully reviewing the terms of the contract. Such decisions have cost employers hundreds of thousands of dollars.

The Future of Self-Funding with Healthcare Reform

Clearly, there is real founded concern about the financial costs of healthcare reform legislation (PPACA) due to richer benefits and coverage requirements for all eligible employees. Self-funding is an effective cost-control strategy that can help avoid the following health reform requirements:

• Benefit requirements — Self-funded plans are not included in the requirements imposed on fully insured plans, such as essential health benefits, comprehensive coverage for health benefit packages, annual limitations on deductibles, and guaranteed issue of coverage.

• Administrative requirements — Jurisdiction of state ombudsmen, application of state law to prevent fraud and abuse, and administrative simplification rules do not apply to self-insured plans.

Avoiding these requirements will reduce costs. Healthcare Reform also imposes significant taxation on carriers beginning December 31, 2013. The costs will, undoubtedly, be passed onto employers in the form of higher premiums for the fully insured. These costs can be reduced significantly through a self-funded arrangement.

Most significantly, employers are required to enroll all eligible employees or they could face a monetary penalty. Currently, any given employer group health plan is waived by 25% or more eligible employees. Claims data demonstrates that those who are likely to waive coverage have significantly lower claims than those who enroll in their employers’ plans, which makes sense. The most cost-effective way to pay for these low claimants is to pay only for their claims costs along with an administrative fee. A fully insured premium is based on the higher-claims employees who have already enrolled in the plan.

A self-funded arrangement is the most cost-effective platform to provide coverage for healthier-than-average employees since low claims add up to low costs. It could take years for a fully insured carrier to recognize the influx of healthier employees in the rates and premiums they offer employers. This is because fully insured premiums are built on decades of actuarial data from current insureds. Also, they exclude the healthier employees who are waiving coverage.

A Solid Tool in the Toolbox|

There are many advantages to self-funding, but like many tools, the proper application is key. As benefit consultants and professionals, it is up to us to give employer groups the proper guidance and coaching about the advantages and disadvantages of self-funding. If you are just getting started in this area, I suggest that you pursue continuing education to master the new developments in the industry or partner with key providers to offer this important service to your employer groups. Most experts believe that the advantages of self-funding will continue to attract growing numbers of clients.

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Doug Ramsthel is vice president of Burnham Benefits Insurance Services. Based in Irvine, Calif., Burnham Benefits Insurance Services Inc., is one of the largest employee benefit brokerages in Southern California and one of the few to specialize solely in employee benefits. The company has three offices in California: Irvine, Los Angeles and Santa Barbara; as well as offices in Oregon and the Washington D.C. metro area. For more information, visit www.BurnhamBenefits.com.

Our Annual Dental Survey Part III–You Know the Drill….

Welcome to Part III of California Broker’s 2011 Dental Survey. We’ve asked the top dental providers in California to answer 28 crucial questions to better help you, the agent, understand their benefits, features, and services. Read the responses and sell accordingly. If you’d like to view the survey in it’s entirety, please click here.

9. 
If covered, explain the process that allows the general dentist to refer to the specialist.

Aetna: For DMO plans, general practitioners can refer to a participating specialist directly based on published guidelines. DMO members have direct access to participating orthodontists and do not need a specialty referral. Indemnity and PPO plans have direct access for specialty services.
Aflac: We do not require referrals.
Ameritas PPO and the FDH Networks: Specialist referrals are allowed at any time from our general dentists. There is no gate keeper involved in this process.
BEN-E-LECT: Referral is not necessary for any of our plans. The member may select a specialist and schedule an appointment upon making a phone call or personal visit.
BEST Life: No referral is necessary. Insureds can visit a specialist at any time.
Blue Shield: The general dentist completes a specialty care refer
ral form and provides a copy to the dental HMO plan member, who brings this to the participating specialist at the time of the appointment. Dental PPO plan members may self-refer to a specialist.
CIGNA: DPPO plans don’t require referrals and general dentists aren’t required to act as gatekeepers. For DHMO plans, general dentists act as coordinators for all specialty services except pediatrics up to age seven (on most plans) and orthodontic network dentists. Referrals are not needed for orthodontia or for children under age seven to visit a network pediatric dentist. General dentists refer individuals to network specialists as deemed necessary. CIGNA works directly with the specialists for preauthorization and direct payment when appropriate.
Dearborn National: For our DHMO program, General Dentists can either refer members to an in-network dentist by calling our customer service, or the member can call our customer service department directly for a list of specialists in the network.
Delta Dental: Fee-for-service enrollees can self-refer; referral by the 
general dentist isn’t required. For DHMO enrollees, the primary care dentist is responsible for submitting the predetermination request and directing the enrollee to the appropriate specialist once authorization is received.
Dental Health Services: The general dental office sends Dental 
Health Services a specialist referral authorization. Upon approval, the authorization is sent back to the general dentist who informs the patient that they are now eligible to get appropriate care from a specialist.
Guardian: For the DHMO plan, any complex treatment requiring 
the skills of a dental specialist may be referred to a Participating Specialist Dentist. Our DHMO plans offer Direct Referral in which the member may be referred directly by their primary care dentist to a participating specialist without pre-authorization.
Health Net Dental: For DHMO plans that require pre-authorization, 
the contracting primary care dentist completes a specialty referral form and submits to Health Net Dental. Approvals are returned to the primary care dentist, member and specialist. Upon receiving the approval, the member contacts the specialty office to schedule an appointment for completion of treatment. Our PPO dental plans allow self-referrals to participating or non-participating specialists as needed.
HumanaDental: General dentists are encouraged to refer members 
to participating specialists to provide the highest level of benefit to the member. The general dentist can refer out-of-network if there are no specialists within a reasonable distance.
MetLife: Our Dental PPO product does not require referrals for specialist care. For Dental HMO, the SafeGuard SGX and MET series of Dental benefit plans allow participating general dentists the flexibility to refer members to participating specialists without prior approval from SafeGuard — except for orthodontic and pedodontic specialty services in CA where the member’s selected general dentists will contact SafeGuard for pre-approval.
Principal Financial Group: Patients can choose any provider in the network; referrals are not required.
Securian Dental: No referral is required.
United Concordia Dental: Although DHMO plan members must coordinate all care through their primary dental office, including referrals to specialists, no preauthorization or referral review is required, allowing the referral process for all specialty services to be completed immediately.
Western Dental: Once the general dentist determines that the necessary procedure is out of his or her scope of practice, the office will submit a written referral request to our plan. Western Dental’s dental director then determines whether the referral is medically necessary and whether the procedure is covered under the benefit plan.

20. 
Are any of your specialists board eligible/certified?

Aetna: Yes
Aflac: For benefits to be payable, the specialist must be licensed by his or her state to perform the required treatment.
Ameritas PPO: Yes, all are board eligible or certified and are monitored during the PPO credentialing process.
BEN-E-LECT: Yes. All of our specialists are board certified as a requirement.
BEST Life: Yes. All of our specialists are certified and must meet a rigorous credentialing process to be included in our network. Before a specialist can join our network, we require a license to practice, DEA/CDS certificates, Education/Training including Board Certification, work history, malpractice insurance, malpractice claims history, hospital privileges, sanctions against their license, Medicare/Medicaid sanctions, and perform ongoing monitoring of sanctions or regulatory actions. All providers must go through the credentialing process every three years.
Blue Shield: Yes, this varies by specialist.
CIGNA: Yes, all network dentists contracted to provide specialty care have successfully completed post-graduate dental specialty programs in their fields. CIGNA’s dental networks include specialists in periodontics, orthodontics, endodontics, pediatric dentistry and oral surgery.
It is important to note that in dentistry, board certification is not the norm. As a result, we do not require this item for credentialing. We accept dentists who are recognized specialists, including those who are board certified or board eligible.
Dearborn National: All specialists in our network must be board 
eligible to be accepted into our network, however specialists are not required to be board certified.
Delta Dental: Delta Dental requires board certification where it is required by state law. Under the fee-for-service plans, Delta Dental credentials all of its participating specialists in the same manner, whether they are board eligible or board-certified. Under the DHMO plans, Delta Dental requires all DeltaCare USA network specialists to be board qualified.
Dental Health Services: The majority of our dental specialists are 
board certified.
Guardian: Many of our PPO specialists are board certified or eligible and all of the DHMO specialists are board eligible.
Health Net Dental: Yes.
HumanaDental: All participating specialists must provide copies of 
their specialty licenses or residency certificates.
MetLife: In order to participate with the Dental PPO or HMO, special
ists must submit and keep current any certifications and/or other factors necessary to maintain their specialty.
Principal Financial Group: Yes. All specialists are required to be 
board eligible, board certified or be a designated specialist by the ADA.
Securian Dental: 100% of the specialists in our network are board 
certified or board eligible.
United Concordia Dental: Yes, as part of our credentialing process, 
we verify each dentist’s education, license and certifications.
Western Dental: All contracted specialists are board eligible/certified.


19.  If covered, explain the process that allows the general dentist to refer to the specialist.

Aetna: For DMO plans, general practitioners can refer to a participating specialist directly based on published guidelines. DMO members have direct access to participating orthodontists and do not need a specialty referral. Indemnity and PPO plans have direct access for specialty services.
Aflac: We do not require referrals.
BEN-E-LECT: Referral is not necessary for any of our plans. The member may select a specialist and schedule an appointment upon making a phone call or personal visit.
BEST Life: No referral is necessary. Insureds can visit a specialist at any time.
CIGNA: DPPO plans don’t require referrals and general dentists aren’t required to act as gatekeepers. For DHMO plans, general dentists act as coordinators for all specialty services except pediatrics up to age seven (on most plans) and orthodontic network dentists. Referrals are not needed for orthodontia or for children under age seven to visit a network pediatric dentist. General dentists refer individuals to network specialists as deemed necessary. CIGNA works directly with the specialists for preauthorization and direct payment when appropriate.
Dearborn National: For our DHMO program, general dentists can refer members to an in-network dentist by calling our customer service number, or the member can call our customer service or department directly for a list of specialists in the network.
Delta Dental: Fee-for-service enrollees can self-refer; referral by the general dentist isn’t required. For DHMO enrollees, the primary care dentist is responsible for submitting the predetermination request and directing the enrollee to the appropriate specialist once authorization is received.
Dental Health Services: The general dental office sends Dental Health Services a specialist referral authorization. Upon approval, the authorization is sent back to the general dentist who informs the patient that they are now eligible to get appropriate care from a specialist.
Guardian: For the DHMO plan, any complex treatment requiring the skills of a dental specialist may be referred to a participating specialist dentist. Our DHMO plans offer Direct Referral in which the member may be referred directly by their primary care dentist to a participating specialist without pre-authorization.
Health Net Dental: For DHMO plans that require pre-authorization the contracting primary care dentist completes a specialty referral form and submits to Health Net Dental. Approvals are returned to the primary care dentist, member and specialist. Upon receiving the approval, the member contacts the specialty office to schedule an appointment for completion of treatment. For plans that have direct referral, the primary care dentist may directly refer the member to a participating specialist by visiting our website or by contacting our customer service.
HumanaDental: General dentists are encouraged to refer members to participating specialists to provide the highest level of benefit to the member. The general dentist can refer out-of-network if there are no specialists within a reasonable distance
MetLife: Our Dental PPO product does not require referrals for specialist care. For Dental HMO, the SafeGuard SGX and MET series of Dental benefit plans allow participating general dentists the flexibility to refer members to participating specialists without prior approval from SafeGuard — except for orthodontic and pedodontic specialty services in CA where the member’s selected general dentists will contact SafeGuard for pre-approval.
Principal Financial Group: Patients can choose any provider in the network; referrals are not required.
Securian Dental: No referral is required.
United Concordia Dental: Although DHMO plan members must coordinate all care through their primary dental office, including referrals to specialists, no preauthorization or referral review is required, allowing the referral process for all specialty services to be completed immediately.
Western Dental: Once the general dentist determines that the necessary procedure is out of his or her scope of practice, the office will submit a written referral request to our plan. Western Dental’s dental director then determines whether the referral is medically necessary and whether the procedure is covered under the benefit plan.

 20. Are any of your specialists board eligible/certified?

Aetna: Yes
Aflac: For benefits to be payable, the specialist must be licensed by his or her state to perform the required treatment.
BEN-E-LECT: Yes, all of our specialists are board certified as a requirement.
BEST Life: All of our specialists are certified and must meet a rigorous credentialing process to be included in our network. Before a specialist can join our network, we require a license to practice, DEA/CDS certificates, education/training including board certification, work history, malpractice insurance, malpractice claims history, hospital privileges, sanctions against their license, Medicare/Medicaid sanctions, and perform ongoing monitoring of sanctions or regulatory actions. All providers must go through the credentialing process every three years.
CIGNA: Yes, all network dentists contracted to provide specialty care have successfully completed post-graduate dental specialty programs in their fields. CIGNA’s dental networks include specialists in periodontics, orthodontics, endodontics, pediatric dentistry and oral surgery. It is important to note that in dentistry, board certification is not the norm. As a result, we do not require this item for credentialing. We accept dentists who are recognized specialists, including those who are board certified or board eligible.
Dearborn National: All specialists in our network must be board eligible to be accepted into our network; however, specialists are not required to be board certified.
Delta Dental: Delta Dental requires board certification where it is required by state law. Under the fee-for-service plans, Delta Dental credentials all of its participating specialists in the same manner, whether they are board eligible or board-certified. Under the DHMO plans, Delta Dental requires all DeltaCare USA network specialists to be board qualified.
Dental Health Services: The majority of our dental specialists are board certified.
Guardian: Many of our PPO specialists are board certified or eligible and all of the DHMO specialists are board eligible.
Health Net Dental: Yes.
HumanaDental: All participating specialists must provide copies of their specialty licenses or residency certificates.
MetLife: In order to participate with the Dental PPO or HMO, specialists must submit and keep current any certifications and/or other factors necessary to maintain their specialty.
Principal Financial Group: Yes, all specialists are required to be board eligible, board certified or be a designated specialist by the ADA.
Securian Dental: 100% of the specialists in our network are board certified or board eligible.
United Concordia Dental: Yes, as part of our credentialing process we verify each dentist’s education, license and certifications.
Western Dental: All contracted specialists are board eligible/certified.

 21. How do you fund your specialty care?

Aetna: Specialty services are paid on a fee–for-service basis.
Aflac: N/A
BEST Life: Specialty care is built into the premium. Specialty care received by a network provider is reimbursed at a discounted fixed fee schedule. Specialty care received by a non-network provider is reimbursed on what is usual and customary for that area, procedure and specialty.
CIGNA: DHMO and DPPO specialists are compensated similarly through discounted fee-for-service, which is paid from a portion of the overall collected premiums.
Delta Dental: Specialty care is built into the premium. Under the fee-for-service plans, specialists are reimbursed by a combination of maximum plan allowances by procedure (contracted fees between Delta Dental and dentists) and coinsurance paid by the covered enrollee. Under the DHMO plan, network specialists are reimbursed for preauthorized services on a per claim basis according to contracted fee schedule and co-payment paid by the enrollee.
Dental Health Services: Specialty care and treatment is paid for on a contracted basis and payment varies by procedure. These costs are built into each plan’s monthly premium rate.
Guardian: Our PPO specialists are paid on a fee-for-service basis. For our DHMO plans, specialty care is funded through a portion of premium.
Health Net Dental: For our DHMO and DPPO plans, we underwrite and rate dental plans based on an assumed specialty care claims liability and build an allowance into our dental premiums.
HumanaDental: Specialists are paid on a fee-for-service basis according to a contracted fee-schedule amount or by reimbursement limit.
MetLife: For Dental HMO, specialists are reimbursed based on a predetermined fixed fee schedule. The SafeGuard SGX and MET series of dental plans have co-payments for specialty services — listed on the schedule of benefits for the plan.
Principal Financial Group: Through normal plan provisions.
Securian Dental: Network dentists (general and specialty dentists) are reimbursed on the basis of a discounted fixed fee schedule. Network dentists agree to accept the fee schedule amount as full consideration, less applicable deductibles, coinsurance and amounts exceeding the benefit maximums and will not balance bill the member.
United Concordia Dental: To fund specialty care, we use standard transfer business techniques to create group rates for new business and client-specific experience for existing business. As such, United Concordia requires claims experience when determining rates for clients with at least 200 enrolled contracts. United Concordia adjusts the prior carrier’s client-specific experience for assumed changes in network utilization and payment levels, changes in benefits and utilization review, and projects it forward to the proposed policy period. We then add required administrative expenses and margins to create the required premium.  If prior carrier experience is not available, we actuarially create rates using client-specific demographics, including plan design, geographic location, prior carrier history, expected participation, and industry.
Western Dental: We incorporate into our premiums what we expect specialty care claims to be. We then pay the claims based on dental necessity and plan guidelines.

 22. Does the member have to be referred by the primary dentist to the orthodontist or can he or she self-refer?

Aetna:The member can self-refer.
Aflac: We do not require referrals. Our policyholders may self-refer.
BEN-E-LECT: Member may self-refer to any orthodontist they prefer. In network versus out of network and plan selection will determine coverage provided.
BEST Life: No referral is necessary on our PPO or Indemnity plans.
CIGNA: None of our plans require a referral for orthodontic care.
Dearborn National: Our DPPO program does not require members to select a primary dentist or an orthodontist. The member has the freedom to choose which network provider they want to frequent and may switch their provider at any time. This includes member visits to orthodontists.  Our DHMO program does require a referral, but it is an automatic approval and the process allows us to provide a better oversight of our orthodontists.
Delta Dental: Under the fee-for-service plans, enrollees can self refer. For DHMO plans, the assigned network dentist submits a referral request for orthodontic treatment to Delta Dental. The network dentist is notified upon approval and is responsible for advising the DeltaCare USA enrollee who then contacts the assigned network orthodontist for an appointment.
Dental Health Services: Members must get a referral from one of our network dentists before visiting a participating orthodontist.
Guardian: PPO members can self-refer to all types of specialty care, including orthodontia. General dentists in our DHMO network will refer the member to a participating orthodontist. The referral does not require plan authorization.
Health Net Dental: Our DPPO product does not require referrals for specialty or orthodontic care, so participants may self-refer. For DHMO, there are three types of specialty referral processes based on the member’s schedule of benefits. For plans that require pre-authorization, a specialty referral form must be submitted by the primary care dentist. For plans that have direct referral, the primary care dentist may directly refer the member to a participating orthodontist by visiting our website or by contacting our customer service. For plans that allow self-referral, the member may go directly to a contracted specialist by visiting our website or by contacting our customer service.
HumanaDental: In our PPO, the member can self-refer to an orthodontist.
MetLife: Our Dental PPO product does not require referrals for specialty or orthodontic care, so participants can self-refer. For Dental HMO in CA, orthodontic specialty services require pre-approval. The member’s general dentist will contact SafeGuard for pre-approval, and once approved will contact the member with the name of a participating orthodontist.
Principal Financial Group: A member can choose to seek services from any provider.
Securian Dental: The member can self-refer.
United Concordia Dental: Our PPO plans allow members to self-refer. Under our DHMO plans, the primary dentist determines if a specialty referral is required, regardless of the specialty.
Western Dental: The member has to be referred by the primary dentist to the orthodontist for our IPA Dental Plan. Our Western Centers-only plan allows the member to self-refer.

23. What is the time frame for processing a referral in terms of member notification and payment to the specialist?

Aetna: DMO general practitioners usually provide a member with an immediate referral. Specialty payments are made on receipt and adjudication of the claim.
Aflac: N/A
BEN-E-LECT: Referral is not necessary with our plans. Members may call and schedule the appointment as desired.
BEST Life: No referrals are required on our Dental PPO/Indemnity  plans.
CIGNA: For the DHMO, typical turnaround time for specialty referrals is five days for pre-authorization and five days for payments.
Dearborn National: For our PPO program, referrals are not required. For our DHMO program, referrals are approved in no more than 5 working days. Claims are paid within 15 days of receipt. The time for treatment is at the discretion of the patient and provider.
Delta Dental: For fee-for-service patients, specialty care referrals are not required and payments to specialists are processed the same as for general dentists. In 2010, the average time for processing predeterminations was seven days. For DHMO enrollees, preauthorizations for specialty care processed within six business days.
Dental Health Services: Emergency referrals are processed immediately. In a non-emergency situation, referrals are processed within one to two weeks. Claims are paid within two to three weeks.
Guardian: Referrals are not required under our PPO plans. For our DHMO plans, payment to the specialist is within 30 days of receipt of the claim.
Health Net Dental: The average turnaround time in processing a non-emergency referral is 48 hours and then seven to 10 business days for the EOB to be received by the member. Once the claim is submitted by the specialist, our average turnaround time in processing is 10 business days of receipt and then seven to 10 business days for specialists to receive payment in the mail. If the claim was sent electronically, it will be sooner.
HumanaDental: Most HumanaDental plans do not require a referral from a general dentist to a specialist. The member gets a higher benefit when seeing a participating dentist and specialist. In 2008, 85% of claims and 97.4% of referrals were processed within 14 calendar days.
MetLife: For Dental HMO, standard referrals are processed in an average of five business days for member notification and 14 business days for payment to the provider.
Principal Financial Group: N/A
Securian Dental: No referral is required.
United Concordia Dental: All referrals are immediately effective. The member is instructed to provide the referral to the specialist at the time of service and the specialist files the referral with the claim. All claims, including specialist claims, mailed to United Concordia Dental are usually processed within 14 days. Claims filed electronically through Speed eClaim are processed for payment immediately unless a review of an x-ray or other documentation is required.
Western Dental: Emergency referrals are handled within 24-hours. The turnaround for non-emergency referrals is three business days. Specialists can expect payment in 10 business days for clean claims.

24. If you limit services with an annual or lifetime maximum, what does the maximum dollar amount allowed refer to?

Aetna:The maximum dollar amount refers to the total amount Aetna will pay for covered benefits.
Aflac: The annual maximum refers to the maximum amount of benefits that may be received within a policy year per covered person. Annual maximums do not apply to wellness and X-ray benefits.
BEN-E-LECT: The maximum dollar and lifetime maximum refers to all services and procedures unless specified otherwise by benefit.
BEST Life: Lifetime maximum applies to orthodontia benefits. BEST  Life offers multiple choices of calendar year maximums for preventive, basic and major procedures.
CIGNA: For DHMO: There is no annual or lifetime maximum;  For DPPO/DEPO/Dental indemnity: The maximum dollar amount refers to the maximum amount payable by CIGNA for covered services rendered.
Dearborn National: As a general rule, lifetime maximums usually only apply to orthodontic services. For our PPO program, annual maximums are applied each year, which includes every service outside of orthodontia. For our DHMO program, annual limits apply only to treatment by a dental specialist.
Delta Dental: Under the fee-for-service plans, the maximum dollar amount refers to the maximum dollar amount paid by the plan. Our DHMO plans do not have annual or lifetime maximums.
Dental Health Services: The majority of our prepaid plan offerings have no annual dollar maximums, although this option is available by client request. PPO plan annual maximums range from $500 to $2,000.
Guardian: The maximum refers to the total of benefit dollars actually paid for covered services incurred within the annual period, or the member’s lifetime in the case of orthodontia. With Preventive Advantage, only basic and major services count toward the annual maximum. We also offer an option to cover cleaning after the maximum is reached.
Health Net Dental: The maximum dollar amount is the total amount the plan will pay for covered benefits.
Humana Dental: Annual maximum refers to the maximum amount paid annually for services, excluding orthodontia. Orthodontic treatment has a lifetime maximum.
MetLife: For Dental PPO, maximums affect only the total annual reimbursement amount available under a plan to an individual or family. It does not limit access to our negotiated fees for services after the maximum is exceeded. For Dental HMO, there are no calendar or lifetime maximums as part of the SafeGuard plans. Note: Negotiated fees for non-covered services may not apply in all states.
Principal Financial Group: The maximum dollar amount refers to benefits paid.
Securian Dental: The annual and lifetime maximum refer to the maximum dollar amounts we will pay for covered services in a calendar year (annual maximum) or over the coverage lifetime (lifetime maximum). Our plans generally include an annual maximum for non-orthodontic covered services and a separate lifetime maximum for orthodontia.
United Concordia Dental: DHMO plans do not have annual or lifetime maximums. PPO plan annual and lifetime maximums vary by benefit plan and refer to the total amount paid in benefits by United Concordia Dental annually or over the member’s lifetime.
Western Dental: The Series 7 DMO plans do not have an annual or lifetime maximum.

25. How and when do you provide eligibility information to your dental offices? How can you ensure that your offices will provide services to a member if they are not on the eligibility listing and it is after regular plan hours?

Aetna: Eligibility is available to our providers 24/7 by calling our automated telephone inquiry system or by accessing the online eligibility roster. DMO providers receive eligibility rosters the first week of each month.
Aflac: Providers may verify eligibility online or by calling our customer service center. We do not require pre-qualification for treatment.
BEN-E-LECT: Our Interactive Voice Response (IVR) system will provide eligibility 24/7. Our pre-paid product will provide services upon collecting information from the member. This information will be transferred to our system electronically.
BEST Life: Providers can use BEST Life’s fax back eligibility system to determine if a member is eligible, outside of normal business hours. Offices routinely check eligibility prior to appointments and have a process in place for dealing with emergency situations.
CIGNA: Dentists can view eligibility information in real time by visiting our secure website for health care professionals (24/7). In addition, we send eligibility information to our DHMO general dentists on a monthly basis. The general dentist can also call the plan for automated verification for an individual who is assigned to a particular office but is not on the eligibility list. This automated system will fax the dentist a written confirmation of eligibility. There is no eligibility listing given to DPPO dentists as people can seek treatment from any DPPO network dentist at any time. If a DPPO dentist wants to verify an individual’s participation in the plan, they can check the secure website or call our toll-free number.
Dearborn National: For our PPO program, providers can utilize our 24-hour, 7 day a week IVR phone response system, or call Customer Service during regular business hours. For our DHMO program, providers can access member eligibility online at anytime.
Delta Dental: Dental offices can verify eligibility by contacting Delta Dental via our website, calling our automated information line or speaking with a customer services representative. Under the fee-for-service plans, a patient who is not shown as eligible may be asked to pay the bill up front. The dental office would be responsible for refunding the patient their overpayment after receiving Delta Dental payment. Under the DHMO plans, in addition to verifying eligibility as listed above, network dentists also receive eligibility lists at the beginning of each month. If an enrollee is not contained in Delta Dental’s eligibility database and claims to be eligible for benefits, Delta Dental contacts the client or the client’s benefit administrator to verify eligibility. If the eligibility verification is for an enrollee who has urgent or emergency needs, our customer service representatives will extend an urgent care authorization.
Dental Health Services: Participating dental offices get eligibility rosters twice a month. If immediate eligibility is needed at any time, the dental office can call our 24-hour automated eligibility verification system or check eligibility online through our website.
Guardian: We do not provide eligibility lists for the PPO plan. Dentist can use our online self-service website, GuardianAnytime.com or call our toll-free line and receive a faxed verification of benefits from 3:00 a.m. to 8:00 p.m., Monday through Friday and from 3:00 a.m. to 1:00 p.m. on Saturday, Pacific Time. Eligibility Rosters for the DHMO plan are provided to the offices twice a month, at the first of the month and the 10th of the month. Dental Offices may also call our Member Services Department from 8:00a.m. to 5:00p.m., Monday through Friday.
Health Net Dental: Our DHMO dentists receive a monthly updated eligibility list that includes member name, member status (active, dropped, suspended or transferred), member ID number, dependent names and eligibility status, fee schedule code, group number and capitation amount, if applicable. DPPO dentists do not receive an eligibility roster since members are not required to select a primary care general dentist. Members would simply choose any network dentist (or non-participating dentist, if they desire) and schedule an appointment. DPPO and DHMO dentists can verify eligibility information via our interactive voice response system and Website, which are accessible 24-hours a day, seven days a week. Because the IVR and Web site are available 24/7 eligibility can be verified anytime regardless of whether the need occurs during business hours.
HumanaDental: Participating offices are encouraged to check eligibility before providing treatment. They can verify members and benefits by calling our toll-free customer service line or through our automated information line to get 24 hour-a-day, seven-day-a week eligibility verification.
MetLife: For Dental PPO and Dental HMO, MetLife has developed a multi-channel technology platform for customer service inquiries including Web, fax, or phone. Through dedicated, real-time* channels, dentists have access to the same plan information provided to employees at the time of service. Dental offices do have access to dedicated online and automated phone system benefit information services to verify eligibility and plan details at any time. Additionally, Dental HMO eligibility data is forwarded once a month to each participating dentist.
* Transactions are processed in “real-time” except when the systems are undergoing scheduled or unscheduled maintenance or interruption.
Principal Financial Group: N/A
Securian Dental: Dental offices can use a toll-free number to call customer service to verify eligibility and benefits. Dental offices can also access www.securiandental.com to verify eligibility.
United Concordia: Dentists can access member eligibility and benefit information online, or toll-free using United Concordia Dental’s IVR system. DHMO providers also receive printed eligibility rosters by mail.
Western Dental: Western Dental provides eligibility listings to our Staff Model Offices electronically and printed eligibility listings to our IPA Providers. This information is updated on the 1st and 15th of each month. For members who are not on the eligibility listing, we offer guaranteed capitation to our network of providers.

26. How do you handle early termination of coverage when a member is still in the middle of orthodontic treatment?

Aetna: We stop issuing our quarterly payments when the member is no longer covered.
Aflac: Benefits will cease upon termination of coverage.
BEN-E-LECT: Payment for benefits will cease at the end of the month for which the termination became effective.
BEST Life: Coverage terminates at the end of the month in which a member is no longer eligible.
CIGNA: Individuals whose plans are ending are covered for services through the end of the month of their termination.
Dearborn National: An eligible expense is incurred when an episode of treatment is initiated prior to the termination of the plan. Covered services would be consistent with the benefit plan and could include such services as root canals, crowns and dentures. The amount of benefit for these services mentioned would be covered if the member leaves the plan. Actual coverage would be consistent with the benefit percentages and allowable charges that were in effect prior to termination. Orthodontia treatment in progress is handled differently, as the case is completed according to the number of months of treatment remaining.
Delta Dental: Delta Dental’s obligation to pay toward orthodontic  treatment terminates following the date the enrollee loses eligibility or upon termination of the client’s contract.
Dental Health Services: If a member’s coverage is terminated in the middle of orthodontic treatment, we encourage the member to participate in a COBRA individual plan that will allow the member to retain orthodontic benefits. If the member chooses not to maintain their coverage, the dental office can prorate any additional treatment fees. The member would then only be responsible for the prorated amount of the full treatment cost.
Guardian: When an orthodontic appliance is inserted prior to the PPO member’s effective date, we will cover a portion of treatment. Based on the original treatment plan, we determine the portion of charges incurred by the member prior to being covered by our plan and deduct them from the total charges. Our payment is based on the remaining charges. We limit what we consider of the proposed treatment plan to the shorter of the proposed length of treatment, or two years from the date the orthodontic treatment started. Also, we enforce the plan’s orthodontic benefit maximum by reducing the total benefit that Guardian would pay by the amount paid by the prior carrier, if applicable.
If a member is undergoing orthodontic treatment and his or her Guardian coverage terminates, we pro-rate the benefit to cover only the time period during which coverage was in force. We do not extend benefits. Our DHMO agreement provides for the contracted orthodontist to complete treatment at the contracted patient charge on a number of our plans. As an additional contract rider we can allow for supplemental transfer coverage for Orthodontia under our DHMO.
HumanaDental: HumanaDental will prorate to provide the appropriate amount given during the time the member was in the plan.
MetLife: Benefit consideration for orthodontic treatment will cease within the month that coverage terminates unless the participant obtains continuation of coverage, in which case benefits would continue as long as coverage remains in effect.
Principal Financial Group: On individual terminations, some of our plans allow for extended benefits that provide one month of additional coverage.
Securian Dental: Benefits are paid based on the services received while the member was covered by Securian Dental.
United Concordia Dental: The extension of orthodontic coverage for DHMO and PPO plans is 60 days if payments are being made monthly. However, if payments are being made on a quarterly basis, coverage will be extended to the end of the quarter in progress or 60 days, whichever is later.
Western Dental: Western Dental has designed a termination clause to protect the member. The member does not incur any additional fees for the early termination of a provider.

27.  How do you handle the additional cost of OSHA required infection control in your participating offices?

Aetna:These costs are a part of doing business.
Aflac: N/A
BEN-E-LECT: This cost is maintained by each participating office. We are not responsible for the cost.
BEST Life: OSHA costs are the responsibility of the provider.
CIGNA: Typically, dentists include these costs into their overhead and we do not allow dentists to charge for this separately. For our DHMO plans, we pay an encounter fee to the dentist to help offset their added cost for OSHA-required infection control.
Delta Dental: The cost is included in regular dental office overhead. Network dentists are not contractually allowed to charge Delta Dental or its enrollees a sterilization/infection control fee.
Dearborn National: Network providers are responsible for the additional costs of OSHA required infection control, with no cost being passed on to our members.
Guardian: Most dentists have incorporated the cost of OSHA requirements into the fees for services and do not charge separately. If it is the office policy to charge separately for OSHA, we do not restrict or limit the fee as long as all patients, not just the PPO patients, are charged. Since there is no CDT/ADA code for OSHA, Guardian plans do not cover such charges. Also, we do not allow participating DHMO dental offices to charge additional fees for this.
Health Net Dental: OSHA-required infection control procedures are not eligible for payment. It is industry standard to implement OSHA compliant infection control standards for all equipment, facilities and staff without a standalone fee and/or reimbursement. For those dentists who do charge a separate fee, payment is the responsibility of the patient, although a Maximum Allowable Charge (MAC) is established.
HumanaDental: Most offices have incorporated the cost of OSHA required infection control in their overall service charges. These costs would be reflected in the data used to compile fee schedules. It’s not usually a separate billable expense.
MetLife: Most dentists include these charges as part of their general overhead expenses, which, in turn, are part of the fees submitted to MetLife and SafeGuard. MetLife and SafeGuard use these fees as the basis for reasonable and customary data and/or for determining Dental PPO or Dental HMO provider fee schedules, as appropriate.
Principal Financial Group: N/A
Securian Dental: The dentist must be in compliance with OSHA required standards including:
1. Meeting OSHA guidelines for hazardous material disposal including sharps.
2. Meeting all state and local requirements for safety and health. The participating office would absorb any costs associated with fulfilling this requirement.
Western Dental: Western Dental handles the additional cost of infection control in its rates and does not charge a co-payment.
United Concordia Dental: Participating dental offices include sterilization costs in their service fees. In turn, United Concordia uses these fees to determine our maximum allowable charge (MAC) and fee schedules. Through a partnership with an outside vendor, we offer participating dental offices access to discounted sterilization monitoring services.

 28. Do you provide utilization data to your clients and brokers?

Aetna: Yes.
Aflac: Since our products are individually issued, this is not applicable.
BEN-E-LECT: Yes, all data is provided at plan renewal and may be provided throughout the year by request.
BEST Life: Yes, we provide utilization information for large groups.
CIGNA: Yes, we can report group utilization data to our clients on an annual basis at no charge. For more frequent reporting, additional charges may apply.
Dearborn National: On large self-funded groups, utilization reports can be generated, pending what is requested and HIPAA compliance rules. For DHMO, claims experience and utilization information is not always reported back to Dearborn National, since a claims submission is not required for the providers monthly capitation payment.
Delta Dental: Delta Dental provides standard utilization reports to clients and brokers on an annual basis upon request.
Dental Health Services: We provide a wide range of utilization reporting, including treatment access, specialty claims activity, and member service call activity on client or broker request.
Guardian: Our standard reports are available monthly, quarterly or annually, and include the following detail: (1) dental plan summary, (2) monthly claims review, (3) cost management, (4) top 25 CDT codes by paid amount, (5) top 25 CDT codes by frequency, (6) benefits category claims comparison, (7) network overview, (8) out-of-network submitted charge comparison, and (9) claims by membership type.
Health Net Dental: Yes, we will provide utilization data upon request for large groups.
HumanaDental: Yes, on request and within the boundaries permitted by HIPAA.
MetLife:Brokers are provided utilization data, if requested, as part of a proposal situation. Clients have online access to their utilization data or can be provided upon request.
Principal Financial Group: Yes, based upon the request of the client and/or broker.
Securian Dental: Yes, we can provide this information to individually rated employer groups upon request.
United Concordia Dental: Yes, utilization reporting is available to clients and brokers.
Western Dental: Yes, utilization data can be provided on request to clients and brokers for large accounts.

 

Life Insurance–There’s More than Meets the Eye with the “Simplified” Life Insurance Sale

by Josh O’Gara, CLU
“No one wants to buy insurance until they can’t buy it.” All too often, it takes the shock of a health problem for people to recognize the need for life insurance coverage. Unfortunately, this is the worst possible time to buy it since the premiums are so much higher.

Worse yet, coverage may be denied. Even so, that’s not the end of the line. For clients who still want life insurance but can’t qualify for a traditional plan, the remaining option is to apply for a plan with limited or no medical underwriting.

It’s this “last resort” situation that comes to mind when talking about guaranteed and simplified issue plans. That’s a narrow view, since this particular marketplace is multidimensional and offers many possibilities. Taking a broader perspective, the variety of available products and what they can accomplish for clients opens up an entirely new market for advisors.

Types of products and their niches: Guaranteed Issue

Guaranteed issue products are really limited underwriting life insurance plans or, popularly, “final expense” plans. A true guaranteed issue plan asks minimal medical questions, such as whether the client has AIDS/HIV or a terminal diagnosis. As long as clients can answer “no” to the medical questions and either they or their legal guardian can sign the application, coverage is guaranteed.

These plans are usually limited to a maximum face amount of $25,000 and most cap the issue age at 80.The plans are typically issued on a cost per thousand basis that is determined solely by the age of the client. There’s an initial 2-4 year “graded benefit” period in which the death benefit is determined either by the premiums paid plus an interest rate or by a fixed percentage of the total death benefit. Once past the graded benefit period, the total face amount is paid. In addition, the plans typically have a cash value account available to the client.

Individually, older clients buy these plans to offset funeral and probate expenses, while those with mental conditions or chronic diseases that exclude them from traditional coverage also purchase them.  Alternatively, many funeral homes and cemeteries offer these plans in a bundle of services or they can be marketed through associations and affinity groups as an added benefit for members.

Unfortunately, these plans can lead to abuse by agents looking to “make a quick buck.” In the past, some agents have marketed them to healthy clients who end up paying a comparatively expensive premium just because the agent wanted to make a quick sale. Such abuse has given rise to some of the stigma surrounding the products, and has caused some state insurance commissioners to either eliminate or severely curtail the sale of the products.

Simplified Issue

Simplified Issue plans require slightly more medical information compared to guaranteed issue plans, but the carriers rarely require evidence outside of the application and possibly a telephone interview. Medical conditions, such as dialysis and COPD, which could cause a client to be declined for traditional life insurance coverage are accepted by many simplified issue plans. If a carrier requires a phone interview, it’s typically just to confirm the answers to the questions on the application.

From day one, these plans are generally level benefit with no graded benefit period. They can be issued in face amounts up to $100,000 for both term and permanent coverage. Should a client want additional protection, multiple carriers can be “stacked” on top of each other to reach the desired coverage.

The premiums for simplified issue plans are typically comparable to a table 4 to a table 12 on a traditional plan, depending on the amount of medical evidence required. Therefore, they’re often used for clients with some health issues but who can answer “no” to a majority of the medical questions.

A wide range of products are available that come under the umbrella of “simplified issue” plans, so it’s important to review several plans and shop the market to find the policy that’s best for the client. Just because a client doesn’t qualify for a particular simplified issue plan doesn’t mean they won’t qualify for another plan since each carrier asks slightly different questions.

Express Issue

Express Issue plans require the most comprehensive underwriting, which makes them the most difficult to qualify for in the guaranteed issue/simplified issue marketplace. Essentially, Express Issue plans are fully underwritten, aside from the fact that there is no paramedical exam required and APSs are rarely ordered (typically if there is discrepancy in information obtained from the application and the other sources).

There’s a full part II on most applications, which asks all of the medical questions on a traditional insurance application. In addition, these plans often require the client to complete a 30-45 minute phone interview conducted by a trained insurance company underwriter. Finally, carriers will run both an MIB and MVR check and, increasingly, they’re checking the prescription database.

These plans are available in face amounts up to $350,000, which is expected to increase as more companies enter the market. Carriers benefit from the fact that it’s unnecessary to invest time and money ordering doctors’ records, while clients and agents benefit from having policies issued in 24-48 hours after an application is submitted.

The typical issue ages are 20 to 70 and both term and permanent policies are available. In most cases, the premiums for Express Issue plans are on par with a Standard or Standard Plus rate with traditional insurance plans.

These plans tend to appeal to clients without health concerns, but who either don’t want to deal with the average 4-6 week insurance underwriting process or are unwilling or unable to complete the lab work for a traditionally underwritten plan. They are also ideal for an agent who doesn’t want to deal with application administration or who is unfamiliar with the underwriting process.

Once the application is taken, the process is completely “hands-off” for the agent until the policy is approved and issued, usually within a couple of days of submission. These plans are highly transactional and are making their way into banks and P&C agencies, where life insurance has typically been sold as something of an afterthought.

Myths about the marketplace

The perception that the guaranteed and simplified issue marketplace only exists to serve “unhealthy” clients has given rise to myths about the products and the companies issuing them, thus limiting their use with a wider spectrum of clients.

Myth #1. The products are only designed for the extremely ill. With little or no underwriting, there’s definitely a portion of the market that aims at less healthy clients. However, other products are essentially fully underwritten through a 30-45 minute telephone call by a trained underwriter.

Myth #2. The products are extremely expensive. Although the premiums of Guaranteed Issue plans are well in excess of those of traditional plans, there are some Simplified Issue plans with premiums on a par with traditionally underwritten Standard or Standard Plus rates. The cost of these plans is typically correlated with how many medical questions are asked on the application, i.e., the more questions on the application, the lower the cost of the policy.

Myth #3. Plans are only available in very small face amounts. Although most Guaranteed Issue plans have a maximum face amount of $25,000, there are some simplified issue carriers offering plans up to $350,000 of coverage with no exams or APS ordering.

Myth #4. The plans are not available for clients who have been declined. Although prior declinations are a “knock out” condition for some Simplified Issue carriers, there are others that accept clients who have been declined elsewhere.

Myth #5. Carriers in this marketplace are not financially strong. Many Simplified Issue carriers carry A+ ratings and one of the top five insurance carriers in the US has converted to an Express Issue format for all term applications under $500,000 of coverage.

Myth #6. Only whole life plans are available. There are some guaranteed term plans available that ask only five medical questions. For Express Issue plans, clients can obtain up to $350,000 of term coverage.

Reconsidering the guaranteed issue marketplace

The guaranteed and simplified issue marketplace is a significant and growing portion of the life insurance industry and one that many agents continue to ignore. A recent New York Times article stated that fewer Americans are insured than ever before. It pointed out that most insurance agents avoid the lower- and middle-market segments, focusing their attention on the higher premium cases found in the more affluent marketplace. In effect, it isn’t worthwhile to spend time and effort on small cases.

Simplified and Express Issue plans could be a way to do business in this underserviced market since they minimize both the agent’s and the consumer’s time commitment. The greatest delay in the regular insurance process involves exam scheduling and ordering of medical records, both of which are eliminated with Simplified Issue plans.

To make it easier for agents, some carriers have combined the three types of plans into one “cascading” application with the medical questions for each plan. The more questions the client can answer “no” to, the better the plans they qualify for. As clients qualify for each plan by answering “no” to the questions in a particular section, they can move on to the next best plan. Therefore, the agent determines the best plan the client can qualify for at the time of the application, so the client pays the lowest premium possible.

Although Guaranteed and Simplified issue plans are not the ideal solution for every client, there is definitely a market for them, since they can address a number of issues that exist with traditional insurance for both the client and agent.

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Josh O’Gara, CLU, is a Brokerage Manager at First American Insurance Underwriters, Inc., the Needham, MA-based brokerage firm that specializes in coaching life insurance producers wanting to grow their practices. He can be contacted at jogara@faiu.com or 800-444-8715.

Bridging the Commission Gap With Voluntary Benefits
How Changing Benefit Trends Affect Your Clients

by Allison Farris Wendelberger

Many HR decision-makers are finding that the recession has created a struggle between the needs of employers and the needs of employees. This turbulent financial climate has opened the door for brokers to help human resource professionals meet the needs of workers while meeting the fiscal objectives of their employers. Here are four trends to discuss with HR executives as they face major decisions while developing their benefit packages.

Education is Key for HR Executives and Workers

When it comes to effective benefit communications, HR executives and employees are often on different pages; sometimes they’re even on different chapters altogether. Forty percent of HR executives rated their benefit communications as extremely effective or very effective. But 40% of employees rated the benefit communications as only somewhat effective. Twenty-seven percent rated the communications as not very effective or not effective at all, according to a 2011 Aflac study.

Fifty-five percent of employees rely on their HR departments to inform them about benefits and that reliance will only grow in the next year. At the same time, HR executives feel the pressure to understand health reform. If fact, they say that understanding the changing healthcare landscape is their second biggest benefit challenge. Now is an ideal time to help your clients close the communications gap brought on by health reform. Start educating your clients about the importance of comprehensive benefit awareness.

Workers need guidance on things such as how flexible spending account limitations and caps will affect their budgets. They will also need a major educational effort to help them understand large departures from traditional healthcare plans in favor of health savings plans and high deductible health plans.

For many employees, this process is often less about what changes are made and more about how those changes are conveyed. Forty-one percent of workers said a well-communicated benefit program would make them less likely to leave their job, according to the study. That’s a pretty powerful incentive to close the communication gap.

The Benefit Package Is the Great Differentiator

Despite the number of people who are unemployed today, the workplace is expected to shift back to an employee-driven environment where top talent is in short supply and high demand. When that happens, a benefit package that’s unmatched by competitors will make the difference between high and low retention rates.

Major medical insurance coverage is likely to become more homogenous with the establishment of minimum benefit standards and the option to move from employer plans to exchange plans. At the same time, HR professionals will be pressed to offer healthcare benefit options that soften the blow of cost shifting and rising out-of-pocket costs that workers will face.

You can encourage clients to consider plans such as voluntary insurance policies that have no direct cost to the company, but offer workers a choice of additional coverage to suit their needs. Supplemental insurance policies and ancillary benefit offerings put your clients in a better light and can make the difference in maintaining and attracting a talented workforce.

Encourage Wellness Initiatives

Health reform has highlighted the increasing popularity of wellness programs. While the new law affords many provisions to entice companies to build or enhance their wellness programs, there is still a challenge in getting workers to take advantage of the programs.

Many HR executives who implement wellness programs feel pressured to meet the much-anticipated cost savings goals that come with effective preventive healthcare. And the ability to meet those goals likely depends on employee participation.

Help your clients find that creative and innovative approach that boosts worker participation and meets their savings goals. Imagine if employees were paid to go to the doctor for preventive procedures, checkups, or vaccines. An increasing number of HR executives and workers are discovering voluntary insurance plans that include wellness benefits that not only cover preventive procedure (mammograms, vaccines, etc.), but also pay cash to policyholders who use it. Other incentives might include an awards program based on points earned when achieving a wellness goal.

X, Y, or Z – Not all Workers are Created Equal

As if HR executives don’t have enough to juggle, there will be a continued need to manage the new melting pot of multiple age groups — Traditionalists, Baby Boomers, Generation X, and Generation Y. These workers have been labeled many things, but each generation has its own style of working and each abides by different rules and expectations of the workplace. HR professionals will need strategies that keep the workplace cohesive while meeting the needs of each generation.

Encourage your clients to consider building benefit packages that address different generations. Only 40% of employers tailor their benefit offerings to employees based on life stages, according to the study. Yet, there are clear nuances when it comes to benefit needs. Most importantly, 66% of workers say they would be more likely to take advantage of a benefit package that was tailored to them.

A package for Baby Boomers and Traditionalists might include heavy retirement savings plans/incentives, health savings plans, or voluntary insurance policies. These plans help protect their assets in case of serious accident or illness during time of need. The plans are also portable, allowing workers to keep their insurance coverage long after they stop working. Companies can even consider offering innovative fringe benefits, such as grandchild care or flex-time/part-time options.

Thirty-eight percent of Gen X workers say that keeping up with their expenses is a top challenge – more so than any other generational group. They ranked “wages keeping pace with inflation” as one of their top two issues of concern. Gen X consumers are most likely to be interested in or enrolled in ancillary benefits, such as dental insurance (73%) and vision plans (52%). Benefit decision-makers need to consider the concerns and priorities for Gen X workers by offering compensation incentives, bonus structures, and options to purchase voluntary ancillary products, such as dental and vision.

Financial planning and retirement savings benefits should also address different needs and goals for Gen Y workers. These workers place high importance on financial security, yet they are the least likely to be financially prepared. Fortunately, time is on their side. Therefore, long-term financial planning tools, money management advice and perks, such as bonuses, work/life balance options, and career development paths will be in high demand for Gen Y workers.

The blueprint for business operations has been transformed, but business leaders still understand that productive employees deliver tremendous value, but only in return for rewards that enhance their lives. Access to comprehensive benefits is one of the most sought after of these rewards. A company’s benefit offerings are not only held in high regard by employees, but they also show how much employees matter and they speak to how well a company delivers on its brand promise.

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Allison Farris-Wendelberger is the California Bay Area state sales coordinator for Aflac. She is responsible for developing and implementing the Bay Area’s strategic market development plan, including the development of the broker channel for Aflac.

Bridging the Commission Gap With Voluntary Benefits
Meeting Objectives Through Voluntary Group Legal Plans

by Bill Brooks 

Employers’ top three benefit objectives are controlling health and welfare benefit costs, retaining employees, and increasing employee productivity. But achieving these objectives requires a skillful balance in the face of declining employee loyalty. In fact, 36% of employees surveyed hope to be working for a different employer in the next 12 months, according to MetLife’s Ninth Annual Employee Benefits Trends Study.

Offering voluntary benefits is one way to help achieve this balance. Nearly two-thirds of employees in the study say they value voluntary benefits as a way to get products and services that meet their personal needs. It’s a win-win situation for your clients and their employees.

Employees who say they are satisfied with their benefits are about three times as likely to also say that they are highly satisfied with their job and feel more loyal to their employer compared to those who are very dissatisfied with the benefit program. Since many Americans are dealing with a new or ongoing legal issue each year, a voluntary group legal plan is one critical benefit that can help employers achieve their benefit objectives while increasing employee loyalty.

How Legal Issues Affect Productivity 

Research conducted by Hyatt Legal Plans reveals just how much ordinary personal legal matters affect employees. The study surveyed working Americans who have had at least one personal legal issue in the past five years. (For example, foreclosure, adoption, bankruptcy, divorce). On average, employees with these kinds of legal issues spend close to three hours a week for five to six weeks dealing with their issue while at work.

The stress that legal issues can cause may erode an employee’s health and diminish work performance. Forty-seven percent of women surveyed and 37% of men said that dealing with their legal issue hurt their physical or emotional health. About half of those whose work performance suffered said there were repercussions, with getting a poor review cited as the leading result. One respondent, who reported that his productivity was down by about 50% said, “All I could think about was my issues and getting away from work.”

Having access to a lawyer through a group legal plan can help employees focus on their work, thus improving productivity. Seventy percent of respondents said that engaging the services of an attorney increased their confidence about managing a legal problem and two thirds said it provided peace of mind.

Improving Loyalty Through Group Legal Plans 

The study reveals that group legal plans generate corporate goodwill. Employees who signed up for the benefit said they felt more loyal to their employer than those who hired their own attorney. One group legal plan enrollee said, “Usually the employers offer minimum benefits. This legal benefit is out of the minimum requirement and actually makes me a more loyal employee.”

The lower cost is one major reason that this benefit is so appreciated. An attorney may charge $200 or more an hour, depending on what part of the country where they operate. But an employer-provided legal benefit that covers most personal legal matters has premiums that are generally less than $20 a month or $200 a year without any additional charges for telephone advice and office consultations on an unlimited basis. In contrast, the study found that more than 80% of people who secured an attorney on their own spent around $1,000 on just one matter.

Controlling Costs Through Voluntary Benefits

Voluntary benefits allow employers to expand the types of benefits offered without significant increases to benefit costs since employees pay the costs for the coverage. According to MetLife’s Ninth Annual Employee Benefits Trends Study, more than half (52%) of employees said that they are interested in a wider array of voluntary benefits that they can choose and pay for on their own. In addition, more than a third (36%) of employees surveyed said that having a choice of voluntary benefits is a strong driver in their feelings of loyalty toward their employer. Why? Employees realize they can save time and money when they get coverages through the workplace. In fact, employees across all generations see choice, cost and convenience as advantages for voluntary benefits. On the other hand, 43% of employers underestimate the level of employee interest and appreciation for these products, and did not recognize their potential for reinforcing employee loyalty.

The fact that only 17% of employers say that voluntary benefits are a very significant part of their company’s benefit strategy, according to the  study, actually presents a great opportunity to brokers and consultants to initiate the conversation and illustrate how they can meet multiple business objectives. At a time when employers are facing competing benefit objectives of increasing productivity and employee loyalty while controlling costs, voluntary benefits like group legal plans can help achieve all three. Not only is the coverage both highly affordable and convenient, but it also has in place quality controls and customer service that enhance the user experience. As a result, it may help to reduce stress, physical and emotional ailments, and absenteeism while ensuring that employees who face a legal issue have the confidence and peace of mind they need to be happier and more productive.

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Bill Brooks is CEO of Hyatt Legal Plans, a MetLife company. Hyatt Legal Plans is the largest provider of group legal plans in the country. For more information on Hyatt Legal Plans, please visit www.legalplans.com



Bridging the Commission Gap With Voluntary Benefits
The Door is Open…Are You Ready to Come In? There’s No Time Like the Present for Voluntary Benefits

by Kris Reddaway

Sometimes we stare so long at a door that is closing that we see too late the one that is open.

Though Alexander Graham Bell wasn’t thinking of employee benefits when he made this statement, his words certainly ring true for brokers today.

With healthcare reform, medical brokers fear that the door is closing on their traditional source of income. Reduced commissions have forced many to look for other sources of revenue. It’s not too late for brokers to open up a whole new line of business that increases their revenue and helps their clients remain competitive. Entering the world of voluntary benefits is proving to be a timely solution for brokers and their clients.

Voluntary benefits, such as life, short-term disability, accident, cancer, critical illness, and hospital confinement insurance are designed to supplement core benefit offerings. Voluntary insurance plans allow employers to offer a cost-effective, expanded benefits package at little to no direct cost to them. Employees choose the benefits that best meet their individual and family needs. They typically pay for these products themselves, usually through convenient payroll deduction.

Reap the Many Rewards Of Voluntary Benefits

You don’t need clients with thousands of employees to reap the rewards of voluntary benefits. A large number of independent benefit brokers consider companies with 100 employees or fewer to be their primary target for the sales and marketing of voluntary worksite products, according to a recent survey by Eastbridge Consulting Group.

Brokers stand to gain plenty by offering a voluntary benefit program. The following are some of the key advantages:

• A reliable new revenue stream. About 40% of employees will purchase a voluntary product when the enrollment includes one-to-one meetings. Each employee could -represent $60 or more in commissions, according to -Colonial Life & Accident Insurance Company sales records. You could earn even more with bonuses and renewals.

• Quick ramp-up without additional overhead. If you partner with an experienced voluntary benefit carrier, you don’t have to be an expert in voluntary benefits or invest in additional overhead. A full-service voluntary carrier typically has proven enrollment systems and benefit communication processes that are ready to go whenever you are.

• Stronger relationships with group benefit clients. You can help clients enhance their benefit package with no effect on the bottom line. You can also bring a lot of value-added services at no added cost. This helps position you as a full benefit provider, which means that your clients won’t have to look to someone else to meet their needs.

Your Clients Can Benefit Too

You aren’t the only one who wins with a voluntary benefit program – so will your clients. Employers enjoy many advantages from voluntary benefits, including the following:

• Better management of their benefit costs. Employers can offer lower-priced, high-deductible health plans and provide voluntary insurance to help cover the higher deductible.
• Time and money savings. Implementing a comprehensive benefit communication and enrollment program can help HR departments save precious time and money.
• Lower payroll taxes. Offering voluntary benefits that qualify for pre-taxing can lower payroll taxes with each enrolled employee.
• Employee satisfaction. Offering voluntary benefits provides a great incentive for workers to stay with their employers. Employees get more benefits with no direct cost to the employer. At the same time, the employer is helping employees protect their health, their savings, and everything they’ve worked so hard to achieve.

Employees who are offered voluntary benefits in the workplace are more satisfied with their benefits than those who aren’t offered the coverage, according to a recent Unum study. Fifty-three percent of employees at companies that offer voluntary benefits say they are satisfied with their benefit packages compared to 34% of those at companies without voluntary benefits.

Developing A Voluntary Practice Is Easier Than You Think

As competition grows among brokers, many are turning to voluntary benefits. So, it’s more important than ever to differentiate yourself. Don’t simply provide products; focus on services that address your clients’ top concerns. When you partner with a carrier that specializes in voluntary insurance and has proven expertise, you can ramp up a voluntary benefit practice quickly and begin maximizing revenue.

Working with a company that offers a broad portfolio of products and a host of value-added services allows you to offer your clients a turnkey solution without the overhead. It also allows you to focus on what you do best without having to become an expert in other areas. Look for a carrier that offers a highly competitive compensation package, but be sure that the carrier is financially stable and easy to do business with. Your voluntary benefit carrier should offer strong support services to help you and your clients with everything from plan design, to enrollment, to the claims process.

Evaluate Potential Partners Carefully

Look for a voluntary carrier that can help you communicate with your clients about new and existing benefits. And consider the advantages of using local enrollers to help with this process.

A one-size-fits-all approach to benefit communication doesn’t work anymore. Since insurance is complex, it isn’t realistic to rely on self-education or technology alone. Having access to benefit counselors who personalize the decision-making process for employees can create real satisfaction. Employees appreciate having someone who can help them understand all the terminology and choices. In fact, 97% of employees surveyed by Colonial Life say personal benefit counseling improved their understanding of their benefits while 98% said that that this type of communication is important.

Personal benefit counseling can also increase employee participation during benefit enrollment.

The participation rate is 46% higher for face-to-face enrollment in voluntary benefits than for a self-enrollment, according to recent study by Eastbridge Consulting Group. This increased participation can significantly affect your revenue.

You should also explore using local enrollers instead of an enrollment firm. Using an enrollment firm that relies on per-diem enrollers who travel from other locations can add expense and create a lack of continuity in your accounts.

Encourage long-term client relationships with a national team of local, established professional benefit counselors who can conduct enrollments and who are available, year after year, for new hire and re-enrollments. This method increases your overall income and you’ll reap the benefits of a consistent benefit message within your accounts.

You Need A Voluntary Strategy to Manage Clients’ Needs

Clients and employees need guidance in today’s changing benefit environment. At the same time, your competition is looking for ways to attract new clients. Also, medical carriers are looking for ways to reduce costs, including broker commissions. Employers will expect their brokers to help them find solutions.

Simply negotiating for a reduction in major medical premiums isn’t going to help your clients get a strong return on their benefit programs. It’s important to integrate voluntary benefits into your clients’ benefit strategies rather than just cross-selling them as an add-on. Offering options that are relevant to their most pressing concerns provides far more value than simply adding voluntary products as a feel good benefit for employees. There’s no better time to enter the world of voluntary benefits. Don’t overlook the open-door opportunity that awaits you.

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Kris Reddaway is the territory sales manager for the Orange County and San Bernardino, Calif., territory of Colonial Life & Accident Insurance Company. He can be reached at 949-612-9220 or KReddaway@ColonialLife.com. Colonial Life provides insurance benefits for employees and their families through their workplace, along with individual benefit education, advanced yet simple-to-use enrollment technology and quality personal service. Colonial Life offers disability, life and supplemental accident and health insurance policies in 49 states and the District of Columbia. Similar policies, if approved, are underwritten in New York by a Colonial Life affiliate, The Paul Revere Life Insurance Company, Worcester, Mass. Colonial Life is based in Columbia, S.C., and is a subsidiary of Unum Group, one of the world’s leading providers of employee benefits. Learn more about Colonial Life at www.ColonialLife.com.

LTC–Americans Have No Class?

by Louis H. Brownstone

The above title could produce a provocative discussion about many issues, but we will limit our discussion to the government’s future role in long-term care protection, including the CLASS Act.

It’s now likely that the CLASS Act will be repealed soon, but its repeal would only be the beginning of many actions that the government will be taking in the coming years to limit its commitment to long-term care protection. I believe that 10 years from now, one could even author a book titled,  “The Decline and Fall of the Government’s Role in Long-Term Care.”

My hypothesis is that the economic realities, which are still not understood by most Americans, will overpower the growing need for long-term care protection and reduce the government’s role. This will particularly affect the middle class. Let’s discuss these economic realities and look at prospects for the CLASS Act, Medicare, Medicaid, and the potential elimination of tax breaks for long-term care insurance buyers.

Our federal spending spree, which was only interrupted in the Clinton Administration for two years in our lifetimes, has produced a staggering debt. This led to the debacle in Washington that produced the very limited debt reduction agreement of August 2. What people misunderstood is that this agreement did not reduce the debt. It merely reduced the increase in the debt. The debt is currently over $14,000,000,000,000. (Zeros are shown for emphasis, but how can one comprehend such a large number?)

For this year alone, our increase in debt will be over $1,300,000,000,000. Assuming that we can shave $2,100,000,000,000 to $ 2,500,000,000,000 off the increase, 10 years from now, the debt is projected to be $22,000,000,000,000 instead of $24,000,000,000,000. It could even be higher than our gross national product if many economists prove to be correct and our economic growth stagnates for a few years. That would put us at the same debt to GNP ratio as Greece, would end our domination as the world’s great super-power, and would make the lives of our grandchildren far less secure than ours.

Given that reality, austerity coupled with tax reform must occur. As President Obama said, the agreement of August 2 is merely the first round of deficit reduction, with many rounds to follow. The scope of the changes that need to be made to get our house in order is huge! The government will not be able to do many things that its citizens now expect it to do including providing a safety net for all the chronically ill.

The first item on the chopping block apparently is the CLASS Act, as its repeal is a part of the August 2 agreement. The CLASS Act has had a rocky ride. It’s repeal in the original Health Care Reform Act only failed by three votes in the Senate, but it made it through. The Bowles-Simpson Committee recommended that it be amended or repealed. The Gang of Six recommended its repeal. Health and Human Services Secretary Kathleen Sibelius has stated that the CLASS Act is unsustainable in its present form. Even Senate Democrat Majority Leader Harry Reid consented to its repeal in the agreement of August 2.

So it is likely to be repealed, despite the fact that CLASS has survived its critics many times, is heavily endorsed by the aging lobbyists, and is like a cat with nine lives. The irony is that CLASS is meant to be self-sustaining and its repeal does nothing whatsoever to reduce our debt. This is because the CLASS Act states, “No taxpayer funds shall be used for payment of benefits and The Secretary…shall ensure that… enrollees’ premiums are adequate to ensure the financial solvency of the CLASS program” (Section 3208). But, that doesn’t seem to matter right now. If repeal of the CLASS Act sounds like a deficit reducing measure it will be repealed. And most Congressmen question its ultimate solvency in the current political climate.

What about long-term care protection in Medicare? Funds are going to have to be cut back severely for Medicare. Medicare will be the first entitlement to lose funding. Most of the initial cutbacks will be aimed at the providers: the doctors, device makers, therapists, and hospitals. Medicare premiums will rise and become needs based. Age eligibility could rise as well. These measures will help, but with the increased number of Baby Boomers growing older, more cuts will be required, and they will come in the areas of sub-acute care.

Cuts are already happening. On August 2, The Wall Street Journal reported that nursing home companies were rattled by Medicare’s plan announced on the previous day to cut $3,870,000,000 in spending to nursing home operators, which will reduce payments to skilled nursing facilities by 11.1%. This was in response to unexpected increases in nursing home payments this fiscal year. Stocks of nursing home operators immediately plunged 30%.

This is just an example of what will happen to providers of sub-acute care. To stay in business, they will have to charge more to private payers. The types of care that Medicare will cover in the future will be reduced and nursing care will be one of the casualties of this budget tightening.

What about long-term care protection in Medicaid? Medicaid is a fundamental part of our social safety net. States administer the plans, but the federal government covers half the cost and I believe that it will continue to do so. However, the ability of the states to fund Medicaid (Medi-Cal in California) is going to be severely tested, especially in a state like California, which is in the midst of its own fiscal crisis and has to slash its budget by some $ 24,000 000,000 this fiscal year.

Cuts are already happening. For example, the state recently withdrew Medi-Cal funds from some 300 adult day care centers, a cost-cutting measure that could backfire if adult day care users are neglected, get sicker, and need to enter skilled nursing facilities. But the almighty budget rules all. When the Legislature attempted to reenact part of the funding, the bill was vetoed by Governor Jerry Brown – a veto he surely did not want to make.

Nursing care expense now constitutes one-third of all Medi-Cal spending and this percentage is projected to rise to one-half before long. Its cost will obviously have to be controlled. What’s going to happen to the poor and those who become poor who can’t get proper nursing care? This problem is too large for private resources to handle alone and many of the chronically ill will be without friends and family who are willing and able to help them. Are they just going to have to fend for themselves? Will some just rot away in place? What a horrible and unacceptable prospect! We’re going to have to figure out a reasonable solution to their plight soon. I hope you have the answer, because I don’t.

Finally, tax reform is long overdue. I believe that the Committee of 12 could actually agree on a plan that could become law. One way to hide an increase in taxes is to eliminate tax breaks. The tax breaks for purchasers of long-term care insurance will be in play as a part of any effort of significant tax reform. All insurance products will be considered including the tax-free buildup of life insurance and annuities and long-term care insurance premium tax breaks for partnerships and corporations. Tax-free exchanges are also threatened, which could impact the desirability of linked products.

The result of all of this is that the government will be forced to play a smaller role in long-term care protection. Middle class Americans will have to protect themselves or face the possibility of terrible scenarios in their last years. They’re going to need our expertise more. The value of long-term care insurance will become more evident to many Americans. Will they be able to afford the protection? We as professionals will have to do better. We will have to understand the future trends and become even more passionate about our product, a core product that every American who has the assets to pay for it should buy.

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Louis H. Brownstone is Chairman of California Long Term Care Insurance Services, Inc., and its sister company, Northstar Network Insurance Agency, Inc.  The former company brokers some 30 high producing long term care specialist agents throughout California.  The latter company provides complete back office support for long term care insurance for broker-dealers, financial planners, and agents.  Brownstone is also Chairman of the National LTC Network.  He can be reached directly at (800) 303-1527 or by e-mail at louis@cltcinsurance.com

Annuities–A Different Type Of Annuity A New Way to Pay FoR Long-Term Care

by Yuri Veomett

A relatively new type of annuity is changing the way many retirees look at paying for long-term care. Commonly referred to as “hybrid annuities,” these products offer long-term care benefits while providing growth advantages that traditional annuities offer.

When you think about how to pay for long-term care in the future, most people don’t automatically think of annuities. Hybrid annuities, however, can be an appealing option for those looking for a plan to cover the cost of that care.

By repositioning a portion of savings into a hybrid annuity, someone can experience growth in their long-term care funds as interest accumulates on the annuity at a guaranteed rate over the life of the contract. Hybrid annuities typically have a specified maximum benefit amount for long-term care that is connected to the initial annuity premium or the accumulated value of the annuity.

There is usually a defined period over which the benefits will be paid. For example, the benefits may be two times the initial premium paid out over a four-year period. If the initial premium is $100,000, there will be a $200,000 maximum benefit amount and a $50,000 maximum benefit per year. The benefits are usually paid partially out of the annuity value and partially out of the insurance company’s general fund. The benefits may be paid out of the annuity first or they can be paid out of the annuity proportionally.

The Need is Real

On average, a 65-year-old person will require three years of some type of long-term care services during their lifetime and about 20% will need care for more than five years. Many people expect to self-fund any long-term care services they may need but, they may not realize the average cost of care in a nursing home is about $75,000 per year.

At this cost, the average 65-year-old would need to save at least $225,000 to self-fund three years of long-term care. The costs can obviously be much higher for those who would need care lasting five years or longer. Realistically, the cost eliminates self-funding as an option for many people who want to protect their assets from Medicaid spend-down requirements.

 

What if You Never Need Long-Term Care Services?

 

Agents often find that many of their clients are hesitant to purchase traditional long-term care insurance due to the typically large premium and the fear that they will never need or use the coverage. The average premium for long-term care was over $2,200 in 2007.

However, more consumers recognize the risks when they have personal experiences with family members needing long-term care. Hybrid annuities can be an attractive option for those who recognize and understand the risk, yet are reluctant to take on the annual premium requirements of traditional long-term care insurance.

One of the biggest advantages of a hybrid annuity is that if you never need long-term care; many of these products offer money-back provisions including the ability to convert the contract into lifetime income. Most products also offer survivor benefits so the funds can be passed on to an heir. With a hybrid annuity, your clients are guaranteed that your money will not be thrown away.

 

Is a Hybrid Annuity Right for Your Client?

 

Hybrid annuities aren’t for everyone. Long-term care insurance makes sense when someone has assets they are looking to protect. In order to have a meaningful benefit, a client would need to put at least $50,000 into a hybrid annuity.

A hybrid annuity would make sense, as part of a financial plan, for someone who has assets to protect and is self-insuring, but recognizes that there is a real chance of needing costly long-term care. If your client has money saved in safe low return vehicles to help self-fund long-term care, you may find that they can cover long-term care risk more efficiently with a hybrid annuity with little change in net return.

There are a handful of hybrid annuities on the market. Each is designed in a slightly different way, thus providing various payment and benefit options.

 

What to Look For in a Hybrid Annuity

 

If your client is interested in a hybrid annuity, be sure to look for the following product features:

• Benefits that leverage the value of the annuity.  Since long-term care services can be expensive, it is important to have benefits that provide a material amount of coverage beyond the value of the annuity itself. Most hybrid products include a daily benefit for long-term care services. Make sure the annuity value provides a daily benefit that will be sufficient to pay for the type of care preferred.

• Choice in the type of care covered – Look for a product that covers all types of care – home care, adult day care, assisted living facilities and nursing homes – so your client is not limited.

• Inflation protection –  With the cost of care rising steadily, it’s important to factor in the growth of the benefit. The amount of funds originally planned to use for long-term care may not provide the length of coverage someone may need due to increasing costs in the future. Some products offer built-in or optional inflation protection that can help keep up with these increasing costs. Think about the level of coverage that will be available when someone is most likely to need the benefits.

• One that provides access to the money – In the event that long-term care services are not needed, look for a contract that provides options to annuitize the contract into lifetime income payments or that offers a death benefit to beneficiaries.

• Contracts defined as tax qualified long-term care insurance – Recent changes in tax laws have allowed many hybrid products to be tax qualified long-term care insurance. Therefore, the long-term care charges and benefits will not be taxed, allowing the money to work harder for your client.

• A company with experience – Long-term care insurance can be complicated. Choose a company that has experience with both annuities and long-term care insurance.

• Company ratings – Look for a company with solid financial ratings. You want a company that will be able to pay the benefits when needed.

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Yuri Veomett, FSA, MAAA, currently serves as Product Performance Director at Mutual of Omaha. He is responsible for product development and management of the individual annuity line of business. Veomett’s experience includes product development and pricing of individual life and annuity products and asset/liability management. For more information about annuities, visit www.mutualofomaha.com.



401(k)s–Succeeding Under the Spotlight
An Advisor’s Guide to Defined Contribution Fee Disclosures

by Robert Melia

When it comes to defined contribution plans, the competitive landscape began a major shift when the Dept. of Labor (DOL) issued final participant fee disclosure regulations effective in the second quarter of 2012. The fee disclosure regulations apply to ERISA-covered plans that allow participants to direct their investments, such as 401(k) plans, profit sharing plans, money purchase pension plans, and ERISA-covered 403(b) plans. The new regulations require far more transparency from plan administrators, service providers, and financial advisors. The disclosures should help participants understand the true costs of their retirement plans.

Advisors’ services and fee structures are likely to come under increased– scrutiny in the years ahead. So it’s critical for advisors to understand the new requirements and give their clients candid information on their fees and the value of their services.

Communicating Participant Fee Disclosures – The Basics

The participant fee disclosure regulations are effective in May of 2012. All plans have until May 31, 2012 to comply with most of the new participant fee disclosure rules. The new disclosures are designed to help participants make informed decisions about their plan accounts. Participants will now get a number of disclosures with particular emphasis on investment information and fees.

Initial Notice

Plans sponsors must disclose the following general information about the plan:

• All designated investment options, brokerage windows, or similar arrangements as well as designated investment managers.
• The procedure used to designate participant investment elections.
• An explanation of any fees deducted directly from participant accounts for administrative services or individual expenses including charges related to plan loans, qualified domestic relations orders, or certain investment expenses.
• Investment related information that will include, among other things, performance / return information, comparative benchmark performance information, the total operating cost of the fund, and the total operating cost expressed in dollars for every $1,000 invested.
Many plans and providers will adopt the DOL’s model charts, which will be viewed as a safe-harbor disclosure.

Quarterly

On a quarterly basis, plan administrators must disclose fees and expenses that are deducted from participant accounts, such as loan-initiation fees, withdrawal-processing fees, or a plan-wide administration fee that is debited across participant accounts. Plan administrators are likely to disclose these in the quarterly participant statement. The disclosure will communicate the actual charges assessed against the participant’s account in the preceding quarter.

Plan administrators must also provide, as part of the quarterly disclosure, that some or all of the administrative fees are paid partly through a revenue sharing arrangement between the fund company and the record keeper assuming the plan has investment options that have revenue sharing agreements. This disclosure is in addition to the hard dollar explicit fees that would be deducted from participant accounts as described above.

Annually

At least once a year, the plan administrator must provide the same information that it provided to employees initially whether or not an employee is enrolled in the plan. In addition, 30 to 90 days before the effective date of the change, the plan administrator must notify participants of any changes to the general plan information it provided in the initial and annual disclosures.

Web Requirements

The plan administrator must have a Website that provides the following information to participants for each plan investment on an updated basis:

• The name of the issuer of the investment.
• The objectives of the investment.
• The strategies and principal risks of the investment.
• The turnover rate of investment.
• A quarterly update of investment performance.
• Expense information, such as shareholder fees and other fees described above in the annual and initial disclosure requirements.

Investment-Related Communications

Investment-related information is the most important aspect of the new disclosure rules. It will require the most significant changes to participant communications. In addition to printed statements, all information on designated investments must be available online.

Each investment option under the plan must be described in significant detail. The disclosure must include the following:

• The name and asset category.
• Past-performance data including the total annual return for the preceding one-year, five-year, and 10-year periods or for the life of the investment.
• The applicable benchmarks for the preceding periods so participants can compare the performance of their investment.
• Shareholder-type fees, such as commissions or sales loads and any restrictions on purchases or withdrawals.
• For non-fixed return investments, total annual operating expenses for the investment – expressed as a percentage and as a dollar amount for a $1,000 investment over a one-year period.
• A statement explaining that fees are only one factor to consider when choosing an investment and that past performance is not an indication of future returns.
• A glossary of investment terms to help participants understand their plan’s investment options.

Investment information must be provided in a comparative chart format. There is no mandated format for all other disclosures as long as the plan administrator provides these disclosures to participants within the applicable time frames and they are written in a manner that participants can easily understand. Some plans may be subject to special disclosure rules including plans that offer employer securities, annuity options, and fixed return investments as investment choices.

Things to Consider

With these required fee disclosure documents, financial advisors are facing the future with caution and trepidation. They are using a variety of formats to communicate their fees and the value of their services. Those who do the minimum to comply with the regulations may be at a disadvantage to other advisors who present information in a clear and comprehensive format. This may include a description of the services they provide and the value of those services. This approach brings additional value to the plan participant and helps them understand the fees that go into their 401(k) plans.

The advisor can work with a service provider that offers retirement check-ups at the participant level and shares the plan administrator’s goal of helping each employee achieve a secure retirement. With this approach, participants will value the advisor relationship and be willing to pay the associated fees.

Many participants are unaware that they are paying fees with their 401(k) or other defined contribution plans. But, that will change in the first quarter of 2012. They will see any asset-based fees on the quarterly statement. Or they will see a chart describing the fees they pay for every $1,000 they have invested in a fund. What will they do when they see this information for the first time:

• Complain?
• Demand more indexed funds?
• Question the value of the service providers who are being paid from the plan or the investments in the plan?
• Make difficult inquiries and demands from the sponsor, advisor, and service provider?

The answer is likely to be yes to all of the above. Advisors who meet regularly with the plan administrator and participants to educate participants about their fees will survive the initial deluge of questions that will come with fee disclosure.

The additional light being shined on fees will allow advisors who are experts in the field to demonstrate their value. But, advisors who do nothing will be perceived as a commoditized offering forcing participants and sponsors to seek a low cost alternative.

Ultimately, the plan participant wins by realizing the true potential of their defined-contribution plan. The expert advisor wins by providing true differentiating services those participants appreciate  – services that put them on the road to a more secure and optimistic retirement.
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Bob Melia is VP of Product Development for Lincoln Financial Group’s Defined Contribution business.  Mr. Melia has been responsible for Lincoln’s small and mid market NAV offering that offers low cost funds that do not have any 12b-1 or sub-ta fees to plan administrators in the small end of the market. Mr. Melia also constructed Lincoln’s Clearer is Better fee disclosure campaign where Lincoln provided to all of their customers prior to regulatory effective dates easy to ready disclosures about the fees charged by Lincoln as well as their partners as part of their retirement solutions.

Wild About Wellness–Part II of Our Annual Survey

The first part of our Wellness Survey ran in our May edition. In the second and final part here, providers answer questions eight through fourteen regarding specifics that are relative to today’s agents.

8.  Do you tailor you wellness program to each member’s health risk factors?

CIGNA: Yes, for example, when an individual completes the health risk assessment, that person’s responses are analyzed and then the individual is invited to participate in health coaching programs that address the highest risks. The Health Advisor program identifies people at risk and outreaches to them for coaching. Chronic condition management programs are targeted to people with specific conditions or those who are at-risk for a chronic condition. The Metabolic Syndrome Improvement Program is designed for people who have the condition or are at risk.

Health Net: Health Net works with the employer to tailor onsite programs that address member risk. In addition, members are encouraged to take action based on their risks identified at the completion of the online health risk questionnaire.

Kaiser Permanente: Yes, Kaiser Permanente coordinates and enhances care through a unique, integrated delivery system. The health information of Kaiser Permanente members is securely captured in HealthConnect, the largest civilian electronic medical record system in the country. The comprehensive data allows Kaiser Permanente to identify the most prevalent health risks and cost drivers among members, and enables HealthWorks to design workforce health programs targeted for specific populations.

LifeBalance: No, LifeBalance provides the resources and tools for individuals to find their individual path toward wellness. LifeBalance encourages all members to make active lifestyle choices for improved health and reduced stress while helping educate people about proper food selections and what it takes to burn sufficient calories each day. The LifeBalance Virtual Guide tool aims to help members examine their habits pertaining to physical fitness, nutrition, green living, community involvement and stress. The tool also offers suggestions for improvement through useful information and tips from industry experts.

UnitedHealthcare: United Healthcare offers a general wellness strategy for year one and a client-specific three-year strategy after aggregate health risks have been ascertained.

9.  What are the average employee participation rates in your plan?

CIGNA: The rate varies by employer client and depends on a variety of factors, such incentives, culture of health, and benefit design.

Health Net: Health Fair participation rates tend to be anywhere from 10% to 20% of the total employer population. Participation in online HRQ and health improvement programs vary with employer group promotion, incentive structure and individual access to online resources.

Kaiser Permanente: Participation rates for workforce health programs vary based on a number of factors, including the types of programs offered, the participation requirements established by the employer, and the inclusion of incentive options. Participation rates also vary from one employer group to the next, generally ranging from 25% to 95%.

LifeBalance: Average participation rates are approximately 30% of current members utilizing the discounts within the Classic LifeBalance Program. With the companywide wellness challenges we have seen utilization rates well over 60% in some cases. Total program membership is currently 500,000 members.

UnitedHealthcare: It varies by program. For health assessments, the average is 38%, but goes as high as 80% depending on incentives.

10.  Do you offer services to the employee’s spouse/partner and/or dependents?

CIGNA: Yes, we offer services to the spouse/partner and dependents over the age of 18.

Health Net: Health Net can include employer spouse/partner and or dependents in any worksite wellness program delivery. Our online and telephonic programs are offered to Health Net members only.

Kaiser Permanente: Based on the needs of an employer, yes, Kaiser Permanente is able to offer HealthWorks services to employee spouses, partners, and/or dependents.

LifeBalance: Yes, all spouses/partners and/or dependents are eligible to utilize the Classic LifeBalance Program components. However, when it comes to the wellness challenges, onsite wellness events, biometric screenings and health risk assessments, it would be an employer decision to make those services available to employee’s spouse/partner and/or dependents.

UnitedHealthcare: Yes, it’s up to the employer.

11.  If you offer a health coach, is the coach available to all plan participants or just those who have a chronic condition?

CIGNA: The health coach is available to all plan participants over the age of 18.

Health Net: Health Net can include employer spouse/partner and/or dependents in any worksite wellness program delivery; our online and telephonic programs are offered for adult Health Net members only.

Kaiser Permanente: Health coaches are available to all adult California members of Kaiser Permanente. Kaiser Permanente provides health coaching through a variety of resources including in person coaching at many medical centers, telephonic coaching and digital (online) coaching.

LifeBalance: No health coaching is offered at this time through LifeBalance; however we have numerous contacts that provide health coaching services and are willing to partner and complement those valuable services if those services are important to the client.

UnitedHealthcare: The health coach is available to everyone with self-enroll. Those with high risk factors receive outreach.

12. Does your plan offer incentives for employee participation?

CIGNA: Yes, some employers offer cash rewards or discounted premiums for participation. The CIGNA Incentive Points Program, which is modeled after airline and hotel loyalty programs, rewards participants with points for engaging in health and wellness programs. The points can be exchanged for gift cards, travel packages and merchandise.

Health Net: Yes, Health Net can work with employer groups to provide incentives to Health Net members, based on the employers’ criteria and budget.

Kaiser Permanente: Yes, Kaiser Permanente offers a wide array of incentive opportunities for HealthWorks programs, including gift cards from a number of retailers, MasterCard reward cards, or health and wellness merchandise. Incentives are available to participating adult KP members and non-members. An incentive component is part of the HealthWorks Perform package for groups with fewer than 250 eligible employees, and tailored incentive options can also be offered in custom programs for groups with over 250 eligible employees.

LifeBalance: Yes, LifeBalance Rewards are turnkey, wellness-based incentives designed to integrate wellness into the company culture by providing desirable, healthy reward options. LifeBalance Rewards provides employers with a turnkey awards program to reward employees. Services include incentive design, company-wide fulfillment while continuously promoting a commitment to wellness by offering rewards that are tied back to healthy behaviors.

UnitedHealthcare: We have two programs: Simply Engaged ($75 health assessment, $25 online coaching, $75 telephonic coaching) and Health Rewards, which can be customized to incentivize all health-related activities including preventive screenings, weight loss challenges, gym visits, etc.

13. What kind of wellness education do you provide for employees?

CIGNA: Onsite wellness seminars on a wide variety of health topics,
as well as Webinars.

Health Net: For larger Health Net employer groups, a web portal can be designed to meet the unique needs of an employer group’s population and can be given a separate “button” exclusive to the employer group. Topics of special interest to a specific population can be offered, as well as the options of interactive, health-related puzzles and games. Special newsletters and health topics can be customized. These options can be discussed and specifically re-tooled to best serve the employers and members.  The online tools include the following:

• Wellness on the Web
• Health Coach Message Center
• Health Crossroads® Web Resource
• Healthwise Knowledgebase

Kaiser Permanente: Kaiser Permanente has a long history of educa-
tion and prevention. We provide health education through a variety of resources including health education classes at employer worksites or at Kaiser Permanente medical centers as well as online health promotion programs and telephonic health coaching.

LifeBalance: LifeBalance Virtual Guide personal quizzes are simple
and straightforward, highlighting a short series of questions. The Virtual Guide was developed specifically to educate members on how the choices they make toward physical fitness, nutrition, green living, community involvement and stress play a key roll in complete work/life balance. The LifeBalance Speakers Bureau offers turnkey, onsite educational sessions designed to cover a wide array of wellness related topics to educate diverse employee populations and support current wellness initiatives.

UnitedHealthcare: We offer hundreds of onsite seminars through
our EAP program, webinars, podcasts, micro-sites, prebuilt newsletters, custom newsletters, etc.

14. Do you provide services nationally in case an employer has multiple locations?

CIGNA: Yes.

Health Net: Health Net’s worksite programs are currently offered in Arizona, California, Oregon and Washington.

Kaiser Permanente: Yes, many HealthWorks products are available through the Kaiser Permanente regions.

LifeBalance: Yes, the Classic LifeBalance Program offers over 10,000 business locations with in the discount vendor network, with an emphasis on the core network states of Alaska, California, Idaho, Montana, Oregon, Utah and Washington. In addition, there are hundreds of national and online businesses that also provide discounts to members outside the core states. Regarding the company wide wellness challenges, wellness planning services and additional wellness products and services provided by LifeBalance, clients coast to coast would find value and be able to take advantages of all services. For additional questions please contact: Dave Miller, Director The LifeBalance Program Dave@LifeBalanceProgram.com, www.getLifeBalancetoday.com 503-234-1375 or 888-754-5433.

UnitedHealthcare: Yes.

COBRA News

Last COBRA Subsidy Recipients Face 186% Increase in Monthly Premiums 

The COBRA – subsidy’s last group of recipients – those who began receiving assistance in May 2010 – roll off the subsidy in August 2011. As a result, they face a 186% increase in their monthly COBRA premiums, according to eHealthInsurance. The federal COBRA subsidy, introduced in March 2009, covered 65% of the cost of COBRA health insurance premiums for up to 15 months. In order to qualify for the subsidy, recipients must have originally become eligible for COBRA as the result of an involuntary termination of employment occurring between September 2008 and May 2010.

Unless they are eligible to enroll in a new employer-based health insurance plan, former subsidy recipients can pay their COBRA premiums at the increased rate for an additional three months until their COBRA eligibility ends.

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EHealthinsurance offers these five Tips for Former COBRA Subsidy Recipients: 

1)  See if you can save money in the individual market. If you’re relatively healthy, you may be able to purchase health insurance on your own at a cost similar to your formerly subsidized COBRA coverage and for less than a full COBRA premium. For example, the Kaiser Family Foundation found in 2010 that the national average cost of maintaining COBRA without the subsidy was $1,137 per month for families and $410 per month for individuals. By comparison, health insurance plans purchased through eHealthInsurance with coverage in effect as of February 2010 averaged $392 per month for families and $167 per month for individuals. However, if you are currently covered by COBRA and have a pre-existing medical condition, it is possible to be declined coverage in the individual & family market. Do not cancel your current insurance coverage until you are officially approved for a new plan.

2)  Understand your government-sponsored options. Healthcare reform expands access to programs like CHIP and Medicaid, but does not provide free coverage. You may qualify for assistance based on your income. For people with pre-existing medical conditions, health reform also expands access to high-risk pools, also known as pre-existing condition insurance plans (PCIP). Though you no longer need to be declined coverage before you can qualify for a PCIP, you may still have to be uninsured for six months. To learn more about government-sponsored options, contact the state department of insurance or the non-profit Foundation for Health Coverage Education at coverageforall.org.

3)  Get hip to HIPAA. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) is a law that guarantees access (for consumers who meet specific criteria) to special health insurance plans that do not have pre-existing condition limitations. If you can show that you have had creditable health insurance coverage without a gap of more than 63 days, you may qualify for a HIPAA plan. Creditable coverage includes COBRA. This is a good option for people who can afford COBRA at the full-price, but have exhausted their 18 months of COBRA eligibility. HIPAA plans can be expensive, but they provide valuable access to coverage to those with pre-existing medical conditions.

4)  Make your consulting work official for health insurance and tax breaks. Many of today’s unemployed earn supplemental income by consulting or contracting. By officially going into business for yourself, you may qualify for group health insurance and special health insurance tax breaks. Depending on the rules in your state, you may be eligible for a small business health insurance plan with only one or two full-time employees (including yourself) and you can’t be turned down due to pre-existing medical conditions. The 2010 healthcare reform law provides a tax credit of up to 35% of the money certain businesses spend on health insurance premiums for low to moderate-income workers. Not all small businesses will qualify for the full tax credit and rules for incorporating your business may vary from one state to another, so consult with your accountant.

5)  Negotiate healthcare costs whenever possible. You may be able to save up to 30% off your medical bills by negotiating with your medical care provider. If you end up uninsured after the COBRA subsidy, you’ll no longer benefit automatically from the discounted rates that doctors and hospitals agree to accept as payment in full from many insurance companies. That means the charges listed on your medical bills may be substantially higher than others are expected to pay. Talk to your doctor or your hospital’s billing department to see if you can negotiate a discount for your care by paying up-front or creating a payment plan. People with Health Savings Accounts or enrolled in plans with high cost sharing may also benefit by negotiating medical costs. Visit Healthcare Blue Book to learn more and find suggested prices for many standard medical services.

For more information, visit www.eHealthInsurance.com.

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COBRA Enrollment Expected to Decline

COBRA subsidies passed by Congress in 2009 created a 1% increase in the medical cost trend, according to a PricewaterhouseCoopers’ analysis. Benefit costs in employer plans increased because of expansions in the number of higher-than-average-cost employees who enrolled in COBRA during the recession. Enrollment in COBRA typically rises during recessions as workers are laid off, but this tendency was magnified by the American Recovery and Reinvestment Act (ARRA). It established a temporary federal subsidy to pay part of the cost of continued health insurance for workers laid off between Sept. 1, 2008 and Dec. 31, 2009. As expected, more workers enrolled in COBRA once subsidies became available.

However, a combination of declining unemployment and expiration of the COBRA subsidies is expected to reduce enrollment in COBRA. Employers’ overall medical growth trend is expected to decrease from 9.5% in 2010 to 9% in 2011 as the number of COBRA enrollees falls, and more young workers are hired. For more information, visit at www.pwc.com/us/medicalcosts2011.